Thursday, April 22, 2010

"Citi's next stab at $5 might be the one that sticks" (C)

From MarketWatch:

No matter how strong resistance is, the more people get used to seeing it, the more likely it will get taken out. For Citigroup Inc. shares, there are signs that suggest the third try at the $5 level should be the charm.

The $5 level isn't significant for Citi's stock just because it would allow some institutional investors to buy it, or because it would make it easier to short. The last two times it spiked above that level, to $5.43 and $5 in August and October 2009, respectively, the stock was well below $5 within two sessions.

And it's pretty clear there is still interest to sell at $5. MKM Partners derivatives strategist Jim Strugger said that activity in the most-active May $5 call options after Citi reported results was biased to the bid side, which suggests the more aggressive option traders were those selling long call positions [taking profits] rather than buying them. And keep in mind that everyone knows the Treasury Department is free to start selling its 7.7 billion share stake in the company [the lock up expired in mid-May].

That's what makes the current rally so impressive. The shares jumped to a high of $5.06 last Thursday then fell back sharply the next session after the Securities and Exchange Commission filed fraud charges against Goldman Sachs Group Inc.

Two sessions later, Citi traded back above $5 in intraday trading, and was poised to make another attempt Wednesday. Basically, the stock's resilience in the face of profit-taking, bad news for the financial sector and potential government sales suggest investors are no longer intimidated by the potential headwinds.

First of all, the fundamental situation is better, as better-than-expected first-quarter profit and revenue, amid improved credit metrics, indicate that Citi continues to turn the corner.

The technical situation is also very different. When the stock had reached $5 in August, the momentum indicator was already declining from overbought levels seen a couple weeks earlier. In October, momentum remained well below its previous high. That indicated the stock had gotten ahead of the technicals, so they couldn't provide support when the stock started to dip. This time, momentum has been rising steadily the last few months....MORE